Navigate through Price Volatility

Jun 06, 2012

Market volatility has been the norm for the past several years in the corn market. It's pretty likely we’ll continue to see volatility, especially between now and the beginning of harvest. Depending on weather, outside markets, Europe, demand, and a number of other variables, prices between now and harvest could range from $4.00 to $6.00 plus?! Breakeven for many producers ranges from $4.50 to $5.25. As prices hover around breakeven, we’re all faced with the difficult task of figuring out what is the best marketing plan.

In general, producers have very little grain sold ahead compared to the past couple of years. Additionally, the past couple of years have conditioned us to believe that a 30 to 40% profit margin is normal. This makes capturing a 5 to 10% profit margin a psychological challenge! Unfortunately, the reality is we may need to recalibrate our marketing goals to match realistic opportunities.

Here are a few tips to help you develop a plan to manage the potential volatility ahead.

1.Identify what you currently know.

A.% of grain currently sold & avg. price

B.Storage available (on farm or at the elevator)

2.Estimate your total crop production.

A.Run several scenarios

B.Continue to improve your estimate as the crop matures.

3.Set realistic profit margin goals.

A.Know your cost of production

B.Know your yield potential

C.Set a realistic price target

D.Start sales with bushels that you do not have storage for

E.Be disciplined - not greedy

It's impossible to predict the exact direction of the markets. Just like it's impossible to predict the exact direction of a thunder storm. However, once you've spent some time and effort focusing on the conditions that you can manage, you should have a better idea of what profit margins are realistic for your farm and the confidence to capture opportunities.

Here is a tool designed to help you navigate through the potential storm of volatility that may lie ahead. Simply plug in your acres, yield estimates, cost of production, price information, and storage capacity. This information should help you to organize your thoughts, evaluate opportunities, and determine what profit margins are appropriate for your operation.

Profit Navigator

Fill- Tan Boxes

Info.

1000

Total Ac. Production

$875.00

Cost of production/Ac.

180

Yield Estimate

$5.25

Price/Bu."Opportunity"

$5.85

Current Price/Bu. sold

$117,000.00

11.1%

20,000

Current Bu. sold

150,000

Storage Capacity

30,000

Short on Storage

$840,000.00

88.9%

160,000

Total Bu.-Yet to sell

180,000

Total Bu. Production

$957,000.00

Total Income

$5.32

Avg. Sales Price/Bu.

$4.86

Breakeven Price/Bu.

$957.00

Income / Ac.

9.4%

Profit Margin

Produced by C&B

$82.00

Profit/Ac.

If you'd like a copy of the "Profit Navigator" decision tool, just send me an e-mail request.